johnson controls FY2008 3rd Quarter Form 10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2008
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to

Commission File Number: 1-5097

JOHNSON CONTROLS, INC.
(Exact name of registrant as specified in its charter)

Wisconsin 39-0380010
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)

5757 North Green Bay Avenue
Milwaukee, Wisconsin 53209
(Address of principal executive offices) (Zip Code)

(414) 524-1200
(Registrant's telephone number, including area code)

Not Applicable
(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13
or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject to such filing requirements for
No
the past 90 days. Yes

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-
accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer Accelerated filer
Non-accelerated filer Smaller reporting company

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes No

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the
latest practicable date.
Class Shares Outstanding at June 30, 2008
Common Stock: $0.01 7/18 par value per share 593,773,517

JOHNSON CONTROLS, INC.

Form 10-Q

Report Index

Page
Part I. Financial Information

Item 1. Financial Statements (unaudited)

Condensed Consolidated Statements of Financial Position at
June 30, 2008, September 30, 2007 and June 30, 2007..........................................................3

Consolidated Statements of Income for the
Three and Nine Month Periods Ended June 30, 2008 and 2007 ...........................................4

Condensed Consolidated Statements of Cash Flows for the
Three and Nine Month Periods Ended June 30, 2008 and 2007.............................................5

Notes to Condensed Consolidated Financial Statements ..........................................................6

Report of Independent Registered Public Accounting Firm ...................................................20

Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations ....................................................................................................21

Item 3. Quantitative and Qualitative Disclosures About Market Risk ..................................................32

Item 4. Controls and Procedures ...........................................................................................................32

Part II. Other Information

Item 1. Legal Proceedings .....................................................................................................................32

Item 1A. Risk Factors ............................................................................................................................33

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds ..................................................38

Item 6. Exhibits .....................................................................................................................................39

Signatures ....................................................................................................................................................40

2

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Johnson Controls, Inc.
Condensed Consolidated Statements of Financial Position
(in millions; unaudited)

June 30, September 30, June 30,
2008 2007 2007
Assets
Cash and cash equivalents $ 256 $ 674 $ 189
Accounts receivable - net 6,647 6,600 6,352
Inventories 2,292 1,968 1,968
Other current assets 1,898 1,630 1,638
Current assets 11,093 10,872 10,147
Property, plant and equipment - net 4,385 4,208 4,071
Goodwill 6,425 6,131 6,065
Other intangible assets - net 779 773 787
Investments in partially-owned affiliates 859 795 609
Other noncurrent assets 1,702 1,326 1,600
Total assets $ 25,243 $ 24,105 $ 23,279
Liabilities and Shareholders' Equity
Short-term debt $ 641 $ 264 $ 462
Current portion of long-term debt 241 899 898
Accounts payable 5,179 5,365 4,760
Accrued compensation and benefits 1,036 978 924
Accrued income taxes 207 97 106
Other current liabilities 2,432 2,317 2,231
Current liabilities 9,736 9,920 9,381
Commitments and contingencies (Note 16)
Long-term debt 3,247 3,255 3,257
Postretirement health and other benefits 263 256 321
Minority interests in equity of subsidiaries 156 128 132
Other noncurrent liabilities 1,845 1,639 1,879
Shareholders' equity 9,996 8,907 8,309
$ 25,243 $ 24,105 $ 23,279
Total liabilities and shareholders' equity

The accompanying notes are an integral part of the financial statements.

3

Consolidated Statements of Income
(in millions, except per share data; unaudited)

Three Months Nine Months
Ended June 30, Ended June 30,
2008 2007 2008 2007
Net sales
Products and systems* $ 7,969 $ 7,199 $ 23,271 $ 20,743
Services* 1,896 1,712 5,484 4,870
9,865 8,911 28,755 25,613
Cost of sales
Products and systems 6,869 6,161 20,226 18,043
Services 1,511 1,366 4,427 3,919
8,380 7,527 24,653 21,962
Gross profit 1,485 1,384 4,102 3,651
Selling, general and administrative expenses (877) (831) (2,715) (2,495)
Net financing charges (69) (71) (204) (209)
Equity income 37 20 85 68
Income from continuing operations before
income taxes and minority interests 576 502 1,268 1,015
Provision for income taxes 121 106 266 176
Minority interests in net earnings of subsidiaries 16 - 39 13
Income from continuing operations 439 396 963 826
Loss from discontinued operations,
net of income taxes - - - (10)
Loss on sale of discontinued operations,
net of income taxes - - - (30)
Net income $ 439 $ 396 $ 963 $ 786

Earnings per share from continuing operations
Basic $ 0.74 $ 0.67 $ 1.62 $ 1.40
Diluted $ 0.73 $ 0.66 $ 1.60 $ 1.38
Earnings per share
Basic $ 0.74 $ 0.67 $ 1.62 $ 1.33
Diluted $ 0.73 $ 0.66 $ 1.60 $ 1.32

* Products and systems consist of automotive experience and power solutions products and systems
and building efficiency installed systems. Services are building efficiency technical and facility
management services.


4

Condensed Consolidated Statements of Cash Flows
(in millions; unaudited)

2008 2007 2008 2007
Operating Activities
Net income $ 439 $ 396 $ 963 $ 786
Adjustments to reconcile net income to
cash provided by operating activities
Depreciation 187 182 553 532
Amortization of intangibles 9 12 28 36
Equity in earnings of partially-owned affiliates,
net of dividends received 10 8 10 (24)
Minority interests in net earnings of subsidiaries 16 - 39 13
Deferred income taxes (53) 3 (73) (46)
Loss on sale of discontinued operations - - - 30
Equity-based compensation 10 11 43 36
Other 18 5 37 26
Changes in working capital, excluding acquisitions
and divestitures of businesses
Accounts receivable (169) (351) 260 (479)
Inventories (57) (102) (207) (192)
Other current assets (156) (166) (117) (123)
Restructuring reserves (10) (60) (42) (123)
Accounts payable and accrued liabilities 209 272 (551) 393
Accrued income taxes 99 30 85 (18)
Cash provided by operating activities 552 240 1,028 847

Investing Activities
Capital expenditures (190) (141) (551) (582)
Sale of property, plant and equipment 10 28 42 45
Acquisition of businesses, net of cash acquired (4) (17) (73) (17)
Business divestitures - - - 35
Recoverable customer engineering expenditures (32) - (17) -
Settlement of cross-currency interest rate swaps (62) (64) (155) (121)
Changes in long-term investments (10) - (22) 3
Cash used by investing activities (288) (194) (776) (637)

Financing Activities
Increase (decrease) in short-term debt - net 66 96 349 164
Increase in long-term debt 7 4 240 109
Repayment of long-term debt (215) (103) (927) (485)
Payment of cash dividends (77) (65) (220) (195)
Stock repurchases - (3) (73) (26)
Other (22) 42 (39) 119
Cash used by financing activities (241) (29) (670) (314)

Increase (decrease) in cash and cash equivalents $ 23 $ 17 $ (418) $ (104)


5

Notes to Condensed Consolidated Financial Statements
June 30, 2008
(unaudited)

1. Financial Statements

In the opinion of management, the accompanying unaudited condensed consolidated financial statements
contain all adjustments (which include normal recurring adjustments except as disclosed herein) necessary to
present fairly the financial position, results of operations and cash flows for the periods presented. Certain
information and footnote disclosures normally included in financial statements prepared in accordance with
accounting principles generally accepted in the United States of America have been condensed or omitted
pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (SEC). These
condensed consolidated financial statements should be read in conjunction with the audited financial
statements and notes thereto included in the Johnson Controls, Inc. (the Company) Annual Report on Form 10-
K for the year ended September 30, 2007. The results of operations for the three and nine month periods ended
June 30, 2008 are not necessarily indicative of results for the Company's 2008 fiscal year because of seasonal
and other factors.

Certain prior period amounts have been revised to conform to the current year’s presentation. Prior year net
sales and cost of sales amounts between Products and systems and Services have been reclassified.

2. New Accounting Standards

In March 2008, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting
Standards (SFAS) No. 161, “Disclosures about Derivative Instruments and Hedging Activities – an
amendment of FASB Statement No. 133.” SFAS No. 161 enhances required disclosures regarding derivatives
and hedging activities, including how an entity uses derivative instruments, how derivative instruments and
related hedged items are accounted for under SFAS No. 133 and how derivative instruments and related
hedged items affect an entity’s financial position, financial performance and cash flows. SFAS No. 161 is
effective for the Company beginning in the second quarter of fiscal 2009 (January 1, 2009). The Company is
assessing the potential impact that the adoption of SFAS No. 161 will have on its consolidated financial
condition and results of operations.

In December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business Combinations.” SFAS
No. 141(R) changes the accounting for business combinations in a number of areas including the treatment of
contingent consideration, preacquisition contingencies, transaction costs, in-process research and development
and restructuring costs. In addition, under SFAS No. 141(R), changes in an acquired entity’s deferred tax
assets and uncertain tax positions after the measurement period will impact income tax expense. SFAS
No. 141(R) will be effective for the Company beginning in the first quarter of fiscal 2010 (October 1, 2009).
This standard will change the Company’s accounting treatment for business combinations on a prospective
basis, when adopted.

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial
Statements, an amendment of ARB No. 51.” SFAS No. 160 changes the accounting and reporting for minority
interests, which will be recharacterized as noncontrolling interests and classified as a component of equity.
This new consolidation method changes the accounting for transactions with minority interest holders. SFAS
No. 160 is effective for fiscal years beginning after December 15, 2008. SFAS No. 160 will be effective for
the Company beginning in the first quarter of fiscal 2010 (October 1, 2009). The Company is assessing the
potential impact that the adoption of SFAS No. 160 will have on its consolidated financial condition and
results of operations.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial
Liabilities – including an amendment to FASB Statement No. 115.” SFAS No. 159 permits entities to measure
certain financial instruments and certain other items at fair value that are not currently required to be measured
at fair value. The objective is to improve financial reporting by providing entities with the opportunity to
mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without
having to apply complex hedge accounting provisions. SFAS No. 159 will be effective for the Company
beginning in the first quarter of fiscal 2009 (October 1, 2008). The Company is assessing the potential impact
that the adoption of SFAS No. 159 will have on its consolidated financial condition and results of operations.

6

(unaudited)

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements.” SFAS No. 157 defines fair
value, establishes a framework for measuring fair value and expands disclosures about fair value
measurements. SFAS No. 157 also establishes a fair value hierarchy that prioritizes information used in
developing assumptions when pricing an asset or liability. SFAS No. 157 will be effective for the Company
beginning in the first quarter of fiscal 2009 (October 1, 2008). The Company is assessing the potential impact
that the adoption of SFAS No. 157 will have on its consolidated financial condition and results of operations.

In June 2006, the FASB issued FASB Interpretation Number (FIN) 48, “Accounting for Uncertainty in Income
Taxes – an interpretation of FASB Statement No. 109,” which clarifies the accounting for uncertainty in
income taxes recognized in an enterprise’s financial statements in accordance with SFAS No. 109,
“Accounting for Income Taxes.” The interpretation prescribes a recognition threshold and measurement
attribute for the financial statement recognition and measurement of a tax position taken or expected to be
taken in a tax return. FIN 48 allows recognition of only those tax benefits that satisfy a greater than 50%
probability threshold. FIN 48 also provides guidance on derecognition, classification, interest and penalties,
accounting in interim periods, disclosure, and transition. See Note 11 for the impact of the Company’s
adoption of FIN 48 as of October 1, 2007.

3. Acquisition of Businesses

In fiscal 2008, the Company completed four acquisitions for a combined purchase price of $80 million, of
which $73 million was paid in the nine months ended June 30, 2008. None of these acquisitions were material
to the Company’s consolidated financial statements. In connection with these acquisitions, the Company
recorded goodwill of $55 million.

In September 2007, the Company recorded a $200 million equity investment in a 48%-owned joint venture
with U.S. Airconditioning Distributors, Inc., a California based, privately-owned heating, ventilating and air
conditioning (HVAC) distributor serving five western U.S. states, in order to enhance the distribution of
residential and light-commercial products in that geography. This investment is accounted for under the equity
method as the Company does not have a controlling interest, but does have significant influence.

4. Discontinued Operations

In March 2007, the Company completed the sale of the Bristol Compressor business, which was acquired in
December 2005 as part of the acquisition of York International Corporation, for approximately $40 million, of
which $35 million was received in cash in the three months ended March 31, 2007 and $5 million was
received in cash in the three months ended September 30, 2007 after final purchase price adjustments. The sale
of the Bristol Compressor business resulted in a loss of approximately $49 million ($30 million after-tax),
including related costs.

Net assets of the Bristol Compressor business at the disposal date totaled approximately $86 million, which
consisted of current assets of $97 million, fixed assets of $6 million and liabilities of $17 million.

In the second quarter of fiscal 2007, the Company settled a claim related to the February 2005 sale of the
engine electronics business that resulted in a loss of approximately $4 million ($3 million after-tax).

5. Percentage-of-Completion Contracts

The building efficiency business records certain long term contracts under the percentage-of-completion
method of accounting. Under this method, sales and gross profit are recognized as work is performed based on
the relationship between actual costs incurred and total estimated costs at completion. The Company records
costs and earnings in excess of billings on uncompleted contracts within accounts receivable – net and billings
in excess of costs and earnings on uncompleted contracts within other current liabilities in the condensed
consolidated statements of financial position. Amounts included within accounts receivable – net related to
these contracts were $637 million, $633 million and $596 million at June 30, 2008, September 30, 2007, and

7

(unaudited)

June 30, 2007, respectively. Amounts included within other current liabilities were $615 million, $538 million
and $521 million at June 30, 2008, September 30, 2007, and June 30, 2007, respectively.
6. Inventories

Inventories consisted of the following (in millions):

Ju n e 30, Sep temb er 30, Ju n e 30,
2008 2007 2007
Raw materials an d s u p p lies $ 929 $ 774 $ 751
W o rk-in -p ro ces s 359 329 317
Fin is h ed g o o d s 1,066 930 952
FIFO in v en to ries 2,354 2,033 2,020
LIFO res erv e (62) (65) (52)
In v en to ries $ 2,292 $ 1,968 $ 1,968

7. Goodwill and Other Intangible Assets

The changes in the carrying amount of goodwill in each of the Company’s reporting segments for the three
month period ended September 30, 2007 and the nine month period ended June 30, 2008 were as follows (in
millions):
Currency
June 30, Business Translation September 30,
2007 Acquisitions and Other 2007
Building efficiency
North America systems $ 500 $ - $ (3) $ 497
North America service 626 - (4) 622
North America unitary products 484 - (3) 481
Global workplace solutions 178 6 (3) 181
Europe 378 - 14 392
Rest of world 517 1 10 528
Automotive experience
North America 1,181 - (4) 1,177
Europe 1,136 2 29 1,167
Asia 188 - 17 205
Power solutions 877 - 4 881
Total $ 6,065 $ 9 $ 57 $ 6,131
Currency
September 30, Business Translation June 30,
2007 Acquisitions and Other 2008
Building efficiency
North America systems $ 497 $ 14 $ 1 $ 512
North America service 622 41 - 663
North America unitary products 481 - - 481
Global workplace solutions 181 - - 181
Europe 392 - 24 416
Rest of world 528 - 65 593
North America 1,177 - - 1,177
Europe 1,167 - 108 1,275
Asia 205 - - 205
Power solutions 881 - 41 922
Total $ 6,131 $ 55 $ 239 $ 6,425

8

(unaudited)

The Company’s other intangible assets, primarily from business acquisitions, consisted of (in millions):

June 30, 2008 September 30, 2007 June 30, 2007
Gross Gross Gross
Carrying Accumulated Carrying Accumulated Carrying Accumulated
Amount Amortization Net Amount Amortization Net Amount Amortization Net
Amortized intangible assets
Patented technology $ 309 $ (167) $ 142 $ 315 $ (147) $ 168 $ 305 $ (138) $ 167
Unpatented technology 26 (11) 15 21 (8) 13 33 (12) 21
Customer relationships 342 (39) 303 306 (24) 282 318 (24) 294
Miscellaneous 35 (13) 22 47 (32) 15 29 (25) 4
Total amortized
intangible assets 712 (230) 482 689 (211) 478 685 (199) 486
Unamortized intangible assets
Trademarks 297 - 297 295 - 295 295 - 295
Pension asset - - - - - - 6 - 6
Total unamortized
intangible assets 297 - 297 295 - 295 301 - 301
Total intangible assets $ 1,009 $ (230) $ 779 $ 984 $ (211) $ 773 $ 986 $ (199) $ 787

Amortization of other intangible assets for the nine month periods ended June 30, 2008 and 2007 was $28
million and $36 million, respectively. Excluding the impact of any future acquisitions, the Company
anticipates amortization of other intangible assets will average approximately $36 million per year over the
next five years.

8. Product Warranties

The Company offers warranties to its customers depending upon the specific product and terms of the
customer purchase agreement. A typical warranty program requires that the Company replace defective
products within a specified time period from the date of sale. The Company records an estimate for future
warranty-related costs based on actual historical return rates. Based on analysis of return rates and other
factors, the Company’s warranty provisions are adjusted as necessary. While the Company’s warranty costs
have historically been adequate, it is possible that future warranty costs could exceed those estimates. The
Company’s product warranty liability is included in other current liabilities in the condensed consolidated
statements of financial position.

The change in the carrying amount of the Company’s total product warranty liability for the nine months
ended June 30, 2008 and 2007 was as follows (in millions):

2008 2007
Balance as of September 30 $ 186 $ 189
Accruals for warranties issued during the period 121 85
Accruals from acquisitions - 5
Accruals related to pre-existing warranties (including
changes in estimates) 3 6
Settlements made (in cash or in kind) during the period (108) (101)
Currency translation 6 4
Balance as of June 30 $ 208 $ 188

9

(unaudited)

9. Restructuring Costs

As part of its continuing efforts to reduce costs and improve the efficiency of its global operations, the
Company committed to a restructuring plan (2006 Plan) in the third quarter of fiscal 2006 and recorded a $197
million restructuring charge in that quarter. During the fourth quarter of fiscal 2006, the Company increased its
2006 Plan restructuring charge by $8 million for additional employee severance and termination benefits. The
2006 Plan, which primarily includes workforce reductions and plant consolidations in the automotive
experience and building efficiency businesses, is expected to be substantially completed by the end of calendar
2008. The automotive experience business related restructuring focused on improving the profitability
associated with the manufacturing and supply of instrument panels, headliners and other interior components
in North America and increasing the efficiency of seating component operations in Europe. The charges
associated with the building efficiency business primarily related to Europe where the Company has launched
a systems redesign initiative.

The 2006 Plan included workforce reductions of approximately 5,000 employees (2,500 for automotive
experience – North America, 1,400 for automotive experience – Europe, 200 for building efficiency – North
America, 600 for building efficiency – Europe, 280 for building efficiency – rest of world and 20 for power
solutions). Restructuring charges associated with employee severance and termination benefits are paid over
the severance period granted to each employee and on a lump sum basis when required in accordance with
individual severance agreements. As of June 30, 2008, approximately 4,700 employees have been separated
from the Company pursuant to the 2006 Plan. In addition, the 2006 Plan includes 15 plant closures (10 in
automotive experience – North America, 3 in automotive experience – Europe, 1 in building efficiency –
Europe and 1 in building efficiency – rest of world). As of June 30, 2008, 14 of the 15 plants have been
closed. The restructuring charge for the impairment of the long-lived assets associated with the plant closures
was determined using fair value based on a discounted cash flow analysis.

The following table summarizes the changes in the Company’s 2006 Plan reserve, included within other
current liabilities in the consolidated statements of financial position (in millions):

Employee
Severance and
Termination Currency
Benefits Other Translation Total
Balance at September 30, 2007 $ 38 $ 6 $ 1 $ 45
Utilized - Cash (5) (4) - (9)
Balance at December 31, 2007 33 2 1 36
Utilized - Cash (12) - - (12)
Balance at March 31, 2008 21 2 1 24
Balance at June 30, 2008 $ 18 $ - $ 1 $ 19

Included within the “other” category are exit costs for terminating supply contracts associated with changes in
the Company’s manufacturing footprint and strategies, lease termination costs and other direct costs.

The Company recorded restructuring reserves of $161 million related to the December 2005 York acquisition,
including workforce reductions of approximately 3,150 building efficiency employees (850 for North America
systems, 300 for North America service, 60 for North America unitary products, 1,150 for Europe and 790 for
rest of world), the closure of two manufacturing plants (one in North America systems and one in rest of
world), the merging of other plants and branch offices with existing Company facilities and contract
terminations. These restructuring activities were recorded as costs of the acquisition and were provided for in
accordance with FASB Emerging Issues Task Force (EITF) Issue No. 95-3, “Recognition of Liabilities in
Connection with a Purchase Business Combination.”

10

(unaudited)

During the second quarter of fiscal 2008, due primarily to a need for increased manufacturing capacity and
changes in the global footprint, the Company reversed its decision to close the two plants originally included
in the York restructuring plan. In addition, due to voluntary employee turnover and the decision not to close
the two York manufacturing plants, the number of total workforce reductions decreased from 3,150 to 2,800.
As such, severance costs will be lower than the original liability recognized. In accordance with EITF 95-3,
the excess reserves of $21 million were reversed to goodwill during the second quarter of fiscal 2008. The
Company anticipates that substantially all of the non-contractual restructuring actions under the York
restructuring plan will be completed in calendar 2008.

As of June 30, 2008, approximately 2,200 employees have been separated from the Company pursuant to the
York restructuring plan, including 295 for North America systems, 50 for North America unitary products,
1,110 for Europe and 745 for rest of world.

The following table summarizes the changes in the Company’s York restructuring reserves, included within
other current liabilities in the condensed consolidated statements of financial position (in millions):

Employee
Severance and
Termination Currency
Benefits Other Translation Total

Balance at September 30, 2007 $ 23 $ 30 $ 3 $ 56
Reclassification 9 (9) - -
Balance at December 31, 2007 29 19 3 51
Noncash adjustments (17) (4) 4 (17)
Balance at March 31, 2008 8 13 7 28
Utilized - Cash (2) (1) (2) (5)
Balance at June 30, 2008 $ 6 $ 12 $ 5 $ 23

Included within the “other” category are exit costs for terminating supply contracts associated with changes in
the Company’s manufacturing footprint and strategies, lease termination costs and other direct costs.

Company management closely monitors its overall cost structure and continually analyzes each of its
businesses for opportunities to consolidate current operations, improve operating efficiencies and locate
facilities in low cost countries in close proximity to customers. This ongoing analysis includes a review of its
manufacturing, engineering and purchasing operations, as well as the overall global footprint for all its
businesses. Because of the importance of new vehicle sales by major automotive manufacturers to operations,
the Company is affected by the general business conditions in this industry. Future adverse developments in
the automotive industry could impact the Company’s liquidity position and/or require additional restructuring
of its operations.

10. Research and Development

Expenditures for research activities relating to product development and improvement are charged against
income as incurred and included within selling, general and administrative expenses. A portion of the costs
associated with these activities is reimbursed by customers. Such expenditures amounted to $95 million and
$121 million for the three months ended June 30, 2008 and 2007, respectively, and $322 million and $390
million for the nine months ended June 30, 2008 and 2007, respectively. These expenditures are net of
customer reimbursements of $106 million and $70 million for the three months ended June 30, 2008 and 2007,
respectively, and $282 million and $183 million for the nine months ended June 30, 2008 and 2007,
respectively.

11

(unaudited)

11. Income Taxes

The more significant components of the Company’s income tax provision from continuing operations are as
follows (in millions):
2008 2007 2008 2007

Federal, state and foreign income tax expense $ 121 $ 106 $ 266 $ 213

Change in tax status of foreign subsidiary - - - (22)
Audit resolutions - - - (15)

Provision for income taxes $ 121 $ 106 $ 266 $ 176

Effective Tax Rate

In calculating the provision for income taxes, the Company uses an estimate of the annual effective tax rate
based upon the facts and circumstances known at each interim period. On a quarterly basis, the actual effective
tax rate is adjusted, as appropriate, based upon changed facts and circumstances, if any, as compared to those
forecasted at the beginning of the fiscal year and each interim period thereafter. For the three and nine months
ended June 30, 2008 and 2007, the Company’s estimated annual effective income tax rate for continuing
operations was 21.0%.

Change in Tax Status of Foreign Subsidiary

In the second quarter of fiscal 2007, the tax provision decreased as a result of a $22 million tax benefit realized
by a change in tax status of an automotive experience subsidiary in the Netherlands.

The change in tax status resulted from a voluntary tax election that produced a deemed liquidation for U.S.
federal income tax purposes. The Company received a tax benefit in the U.S. for the loss from the decrease in
value from the original tax basis of its investment. This election changed the tax status from a controlled
foreign corporation (i.e., taxable entity) to a branch (i.e., flow through entity similar to a partnership) for U.S.
federal income tax purposes and is thereby reported as a discrete period tax benefit in accordance with the
provisions of SFAS No. 109.

Uncertain Tax Positions

In June 2006, FASB issued FIN No. 48, “Accounting for Uncertainty in Income Taxes – an interpretation of
FASB Statement No. 109.” FIN 48 prescribes a comprehensive model for how a company should recognize,
measure, present, and disclose in its financial statements uncertain tax positions that a company has taken or
expects to take on a tax return. The Company adopted FIN 48 as of October 1, 2007.

Upon adoption, the Company increased its existing reserves for uncertain tax positions by $93 million. The
increase was recorded as a cumulative effect adjustment to shareholders' equity of $68 million and an increase
to goodwill of $25 million related to business combinations in prior years. As of the adoption date, the
Company had gross tax affected unrecognized tax benefits of $616 million of which $475 million, if
recognized, would affect the effective tax rate. Also as of the adoption date, the Company had accrued interest
expense and penalties related to the unrecognized tax benefits of $75 million (net of tax benefit). The
Company accrued approximately $11 million of additional interest and penalties during the nine months ended
June 30, 2008. The Company recognizes interest and penalties related to unrecognized tax benefits as a
component of income tax expense or goodwill, when applicable.

12

(unaudited)

The Company is subject to income taxes in the U.S. and numerous foreign jurisdictions. Judgment is required
in determining its worldwide provision for income taxes and recording the related assets and liabilities. In the
ordinary course of the Company’s business, there are many transactions and calculations where the ultimate
tax determination is uncertain. The Company is regularly under audit by tax authorities including such major
jurisdictions as Austria, Belgium, Canada, China, Czech Republic, France, Germany, Italy, Japan, Mexico, the
Netherlands, Spain, United Kingdom, and the United States. The statute of limitations for each major
jurisdiction is as follows:

Tax Jurisdiction Statute of Limitations
Austria 5 years
Belgium 3 years
Canada 5 years
China 3 to 5 years
Czech Republic 3 years
France 3 years
Germany 4 to 5 years
Italy 4 years
Japan 5 to 7 years
Mexico 5 years
Netherlands 3 to 5 years
Spain 4 years
United Kingdom 6 years
United States - Federal 3 years
United States - State 3 to 5 years

In the U.S., the Company’s tax returns for fiscal 2004 through fiscal 2006 are currently under exam by the
Internal Revenue Service (IRS) and the Company’s tax returns for fiscal 1999 through fiscal 2003 are
currently under IRS Appeals. Additionally, the Company’s tax returns are currently under exam in the
following major foreign jurisdictions:

Tax Jurisdiction Tax Years Covered
Austria 2003 - 2005
Belgium 2005 - 2006
Canada 2002 - 2003
France 2005 - 2006
Germany 2001 - 2003
Italy 2003 - 2005
Japan 2005 - 2007
Spain 2003 - 2005

In the nine months ended June 30, 2008, the Company finalized its U.S. federal tax litigation for fiscal 1997
and fiscal 1998 and, consistent with the established reserves, made a tax payment of $27 million. The
associated interest has not yet been assessed. It is reasonably possible that certain other U.S. and non-U.S. tax
examinations, appellate proceedings and/or tax litigation will conclude within the next 12 months, including
the resolution of the fiscal 1999 through fiscal 2003 U.S. federal tax years. However, it is not possible to
reasonably estimate the effect this may have upon the unrecognized tax benefits. There was no other
significant change in the total unrecognized tax benefits due to the settlement of audits, the expiration of the
statute of limitations, or from other items arising during the nine months ended June 30, 2008. In March 2007,
the Company reduced its liability by $15 million due to the resolution of certain tax audits.

13

(unaudited)

Valuation Allowance

The Company reviews its deferred tax asset valuation allowances on a quarterly basis, or whenever events or
changes in circumstances indicate that a review is required. In determining the requirement for a valuation
allowance, the historical and projected financial results of the legal entity or consolidated group recording the
net deferred tax asset is considered, along with any other positive or negative evidence. Since future financial
results may differ from previous estimates, periodic adjustments to the Company's valuation allowances may
be necessary.

Discontinued Operations

The Company utilized an effective tax rate for discontinued operations of approximately 38% for Bristol
Compressors and 35% for its engine electronics business in fiscal 2007. This effective tax rate approximates
the local statutory rate adjusted for permanent differences.

12. Retirement Plans

The components of the Company’s net periodic benefit costs associated with its defined benefit pension plans
and other postretirement health and other benefits are shown in the tables below in accordance with SFAS No.
132 (revised 2003), “Employers’ Disclosures about Pensions and Other Postretirement Benefits – an
amendment of FASB Statements No. 87, 88 and 106” (amounts in millions):

U.S. Pension Plans
2008 2007 2008 2007

Service cost $ 20 $ 19 $ 60 $ 56
Interest cost 35 33 105 97
Expected return on plan assets (41) (38) (124) (114)
Amortization of transitional obligation - - - (1)
Amortization of net actuarial loss 1 2 4 8
Amortization of prior service cost - - 1 1
Net periodic benefit cost $ 15 $ 16 $ 46 $ 47

Non-U.S. Pension Plans
2008 2007 2008 2007

Service cost $ 10 $ 9 $ 29 $ 28
Expected return on plan assets (17) (14) (50) (41)
Amortization of net actuarial loss 1 2 5 6
Net periodic benefit cost $ 14 $ 13 $ 40 $ 39

14

(unaudited)

Postretirement Health and Other Benefits
2008 2007 2008 2007

Service cost $ 2 $ 1 $ 4 $ 4
Amortization of net actuarial gain (1) - (2) -
Amortization of prior service cost (1) (1) (5) (4)
Net postretirement benefit expense $ 4 $ 5 $ 10 $ 14

13. Earnings Per Share

On July 25, 2007, the Company's Board of Directors declared a three-for-one split of the Company’s
outstanding common stock payable October 2, 2007 to shareholders of record on September 14, 2007. All
prior year share and per share amounts disclosed in this document have been restated to reflect the three-for-
one stock split. The stock split resulted in an increase of approximately 396 million in the outstanding shares
of common stock as of the date of the split. In connection with the stock split, the par value of the common
stock was changed from $.04 1/6 per share to $.01 7/18 per share.

The following table reconciles the denominators used to calculate basic and diluted earnings per share (in
millions):
2008 2007 2008 2007
Weighted Average Shares Outstanding
Basic weighted average shares outstanding 592.9 591.9 593.0 589.8
Effect of dilutive securities:
Stock options 8.0 9.3 8.7 8.1
Diluted weighted average shares outstanding 600.9 601.2 601.7 597.9

Antidilutive Securities
Options to purchase common shares 0.9 - 0.9 0.3

14. Comprehensive Income
A summary of comprehensive income is shown below (in millions):

2008 2007 2008 2007
Net income $ 439 $ 396 $ 963 $ 786
Realized and unrealized gains (losses)
on derivatives (49) 41 (101) 20
Foreign currency translation adjustments 70 65 518 204
Other comprehensive income 21 106 417 224
Comprehensive income $ 460 $ 502 $ 1,380 $ 1,010

15

(unaudited)

The Company selectively hedges anticipated transactions that are subject to foreign exchange exposure or
commodity price exposure, primarily using foreign currency exchange contracts and commodity contracts,
respectively. These instruments are designated as cash flow hedges in accordance with SFAS No. 133,
“Accounting for Derivative Instruments and Hedging Activities,” as amended by SFAS No. 137, No. 138 and
No. 149 and are recorded in the condensed consolidated statements of financial position at fair value. The
effective portion of the contracts’ gains or losses due to changes in fair value are initially recorded as
unrealized gains/losses on derivatives, a component of other comprehensive income, and are subsequently
reclassified into earnings when the hedged transactions, typically sales or costs related to sales, occur and
affect earnings. These contracts are highly effective in hedging the variability in future cash flows attributable
to changes in currency exchange rates or commodity price changes.

The favorable foreign currency translation adjustments (CTA) for the nine months ended June 30, 2008 were
primarily due to the strengthening of the Euro and other foreign currencies against the U.S. dollar.

The Company has foreign currency-denominated debt obligations and cross-currency interest rate swaps
which are designated as hedges of net investments in foreign subsidiaries. Gains and losses, net of tax,
attributable to these hedges are deferred as CTA within the accumulated other comprehensive income account
until realized. A net loss of approximately $43 million and $3 million associated with hedges of net
investments in non-U.S. operations was recorded in the accumulated other comprehensive income account for
the periods ended June 30, 2008 and 2007, respectively.

15. Segment Information

SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information,” establishes the
standards for reporting information about segments in financial statements. In applying the criteria set forth in
SFAS No. 131, the Company has determined that it has ten reportable segments for financial reporting
purposes. Certain segments are aggregated or combined based on materiality within building efficiency - rest
of world and power solutions in accordance with the standard. The Company’s ten reportable segments are
presented in the context of its three primary businesses – building efficiency, automotive experience and
power solutions.

Building efficiency

North America systems designs, produces, markets and installs mechanical equipment that provides heating
and cooling in North American non-residential buildings and industrial applications as well as control systems
that integrate the operation of this equipment with other critical building systems.

North America service provides technical services including inspection, scheduled maintenance, repair and
replacement of mechanical and control systems in North America, as well as the retrofit and service
components of performance contracts and other solutions.

North America unitary products designs and produces heating and air conditioning solutions for residential
and light commercial applications and markets products to the replacement and new construction markets.

Global workplace solutions provides on-site staff for complete real estate services, facility operation and
management to improve the comfort, productivity, energy efficiency and cost effectiveness of building
systems around the globe.

Europe provides HVAC and refrigeration systems and technical services to the European marketplace.

Rest of world provides HVAC and refrigeration systems and technical services to markets in Asia, the Middle
East and Latin America.

16

(unaudited)


Automotive experience designs and manufactures interior systems and products for passenger cars and light
trucks, including vans, pick-up trucks and sport utility/crossover vehicles in North America, Europe and Asia.
Automotive experience systems and products include complete seating systems and components; cockpit
systems, including instrument panels and clusters, information displays and body controllers; overhead
systems, including headliners and electronic convenience features; floor consoles; and door systems.

Power solutions

Power solutions services both automotive original equipment manufacturers and the battery aftermarket by
providing advanced battery technology, coupled with systems engineering, marketing and service expertise.

Management evaluates the performance of the segments based primarily on segment income, which represents
income from continuing operations before income taxes and minority interests excluding net financing charges
and restructuring costs. General Corporate and other overhead expenses are allocated to business segments in
determining segment income. Financial information relating to the Company’s reportable segments is as
follows (in millions):

Net Sales
2008 2007 2008 2007
Building efficiency
North America systems $ 605 $ 519 $ 1,680 $ 1,447
North America service 626 590 1,749 1,597
North America unitary products 235 283 550 675
Global workplace solutions 785 657 2,347 1,973
Europe 716 578 1,997 1,743
Rest of world 710 620 1,897 1,697
3,677 3,247 10,220 9,132
North America 1,681 1,988 5,199 5,549
Europe 2,705 2,312 7,657 6,767
Asia 402 335 1,171 1,080
4,788 4,635 14,027 13,396
Power solutions 1,400 1,029 4,508 3,085
Total net sales $ 9,865 $ 8,911 $ 28,755 $ 25,613

17

(unaudited)

Segment Income
2008 2007 2008 2007
Building efficiency
North America systems $ 80 $ 63 $ 192 $ 135
North America service 76 69 144 117
North America unitary products 3 28 (20) 42
Global workplace solutions 16 17 45 49
Europe 38 33 78 53
Rest of world 88 64 202 138
301 274 641 534
North America 47 52 82 (1)
Europe 139 139 334 339
Asia 13 (11) 16 (2)
199 180 432 336
Power solutions 145 119 399 354
Total segment income $ 645 $ 573 $ 1,472 $ 1,224

Net financing charges 69 71 204 209
Income from continuing operations
before income taxes and minority interests $ 576 $ 502 $ 1,268 $ 1,015

16. Commitments and Contingencies

The Company accrues for potential environmental losses in a manner consistent with accounting principles
generally accepted in the United States; that is, when it is probable a loss has been incurred and the amount of
the loss is reasonably estimable. The Company reviews the status of its environmental sites on a quarterly
basis and adjusts its reserves accordingly. Such potential liabilities accrued by the Company do not take into
consideration possible recoveries of future insurance proceeds, although the accruals do take into account the
likely share other parties will bear at remediation sites. It is difficult to estimate the Company's ultimate level
of liability at many remediation sites due to the large number of other parties that may be involved, the
complexity of determining the relative liability among those parties, the uncertainty as to the nature and scope
of the investigations and remediation to be conducted, the uncertainty in the application of law and risk
assessment, the various choices and costs associated with diverse technologies that may be used in corrective
actions at the sites, and the often quite lengthy periods over which eventual remediation may occur.
Nevertheless, the Company has no reason to believe at the present time that any claims, penalties or costs in
connection with known environmental matters will have a material adverse effect on the Company's financial
position, results of operations or cash flows.

The Company is involved in a number of product liability and various other suits incident to the operation of
its businesses. Insurance coverages are maintained and estimated costs are recorded for claims and suits of this
nature. It is management's opinion that none of these will have a material adverse effect on the Company's
financial position, results of operations or cash flows. Costs related to such matters were not material to the
periods presented.

A significant portion of the Company’s sales are to customers in the automotive industry. Future adverse
developments in the automotive industry could impact the Company’s liquidity position and/or require
additional restructuring of the Company’s operations. In addition, the downturn in the North American
automotive market is likely to impact certain vendors’ financial solvency, including their ability to meet
restrictive debt covenants. Such events could result in potential liabilities or additional costs, including
impairment charges, to the Company, or investments by the Company, to ensure uninterrupted supply to its
customers.

18

(unaudited)

17. Subsequent Event

On July 1, 2008, the Company announced the acquisition of the interior product assets of Plastech Engineered
Products, Inc. (Plastech), which filed for bankruptcy in February 2008. The Company owns 70% of the new
entity with certain Plastech term lenders holding the minority portion. The Company contributed $135 million
of cash and five injection molding plants to the new entity. The Company is the largest customer of the new
entity. The entity’s annual sales are expected to total $1.2 billion, of which $500 million to $600 million will
be incremental to the Company.

19

PricewaterhouseCoopers LLP
100 E. Wisconsin Ave., Suite 1800
Milwaukee WI 53202
Telephone (414) 212 1600

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders
of Johnson Controls, Inc.

We have reviewed the accompanying condensed consolidated statements of financial position of Johnson
Controls, Inc. and its subsidiaries (the quot;Companyquot;) as of June 30, 2008 and 2007, and the related consolidated
statements of income and the condensed consolidated statements of cash flows for the three-month and nine-
month periods ended June 30, 2008 and 2007. These interim financial statements are the responsibility of the
Company’s management.

We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board
(United States). A review of interim financial information consists principally of applying analytical procedures
and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope
than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board,
the objective of which is the expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should be made to the accompanying
condensed consolidated interim financial statements for them to be in conformity with accounting principles
generally accepted in the United States of America.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the consolidated statement of financial position as of September 30, 2007, and the related
consolidated statements of income, shareholders' equity, and cash flows for the year then ended (not presented
herein), and in our report dated November 26, 2007 we expressed an unqualified opinion on those consolidated
financial statements. An explanatory paragraph was included in our report for the adoption of Statement of
Financial Accounting Standards No. 158, quot;Employer's Accounting for Defined Benefit Pension and Other
Postretirement Plans - an amendment of FASB Statements No. 87, 88, 106 and 132(R);quot; Statement of Financial
Accounting Standards No. 123(R), quot;Share-Based Payment;quot; and Financial Accounting Standards Board
Interpretation No. 47, quot;Accounting for Conditional Asset Retirement Obligations, an interpretation of FASB
Statement No. 143.quot; In our opinion, the information set forth in the accompanying condensed consolidated
statement of financial position as of September 30, 2007, is fairly stated in all material respects in relation to the
consolidated statement of financial position from which it has been derived.

/s/ PricewaterhouseCoopers LLP

PricewaterhouseCoopers LLP
Milwaukee, Wisconsin
August 5, 2008

20

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

Cautionary Statements for Forward-Looking Information

Unless otherwise indicated, references to “Johnson Controls,” the “Company,” “we,” “our” and “us” in this
Quarterly Report on Form 10-Q refer to Johnson Controls, Inc. and its consolidated subsidiaries.

Certain statements in this report, other than purely historical information, including estimates, projections,
statements relating to our business plans, objectives and expected operating results, and the assumptions upon
which those statements are based, are “forward-looking statements” within the meaning of the Private Securities
Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. These forward-looking statements generally are identified by the words “believe,”
“project,” “expect,” “anticipate,” “estimate,” “forecast,” “outlook,” “intend,” “strategy,” “plan,” “may,”
“should,” “will,” “would,” “will be,” “will continue,” “will likely result,” “guidance” or the negative thereof or
variations thereon or similar terminology generally intended to identify forward-looking statements. Forward-
looking statements are based on current expectations and assumptions that are subject to risks and uncertainties
which may cause actual results to differ materially from the forward-looking statements. A detailed discussion of
risks and uncertainties that could cause actual results and events to differ materially from such forward-looking
statements is included in the section entitled “Risk Factors” (Refer to Part I, Item IA of this Quarterly Report on
Form 10-Q). We undertake no obligation to update or revise publicly any forward-looking statements, whether as
a result of new information, future events or otherwise.

Overview

Johnson Controls brings ingenuity to the places where people live, work and travel. By integrating technologies,
products and services, the Company creates smart environments that redefine the relationships between people
and their surroundings. The Company strives to create a more comfortable, safe and sustainable world through its
products and services for more than 200 million vehicles, 12 million homes and one million commercial
buildings. The Company provides innovative automotive interiors that help make driving more comfortable, safe
and enjoyable. For buildings, it offers products and services that optimize energy use and improve comfort and
security. It also provide batteries for automobiles and hybrid electric vehicles, along with related systems
engineering, marketing and service expertise.

The Company’s building efficiency business is a global market leader in designing, producing, marketing and
installing integrated heating, ventilating and air conditioning (HVAC) systems, building management systems,
controls, security and mechanical equipment. In addition, the building efficiency business provides technical
services, energy management consulting and operations of entire real estate portfolios for the non-residential
buildings market. It also provides residential air conditioning and heating systems.

The Company’s automotive experience business is one of the world’s largest automotive suppliers, providing
interior systems to more than 30 million vehicles annually. Its technologies extend into virtually every area of the
interior including seating and overhead systems, door systems, floor consoles, instrument panels, cockpits and
integrated electronics. Customers include most of the world’s major automakers.

The Company’s power solutions business is a leading global producer of lead-acid automotive batteries, serving
both automotive original equipment manufacturers and the general vehicle battery aftermarket. It produces more
than 120 million lead-acid batteries annually. It offers Absorbent Glass Mat (AGM), nickel-metal-hydride and
lithium-ion battery technologies to power hybrid vehicles.

The following information should be read in conjunction with the September 30, 2007 consolidated financial
statements and notes thereto, along with management’s discussion and analysis of financial condition and results
of operations, included in the Company’s 2007 Annual Report on Form 10-K. References in the following
discussion and analysis to “Three Months” refer to the three months ended June 30, 2008 compared to the three
months ended June 30, 2007, while references to “Year-to-Date” refer to the nine months ended June 30, 2008
compared to the nine months ended June 30, 2007.

21

Summary
Three Months Ended Nine Months Ended
June 30, June 30,
(in millions) 2008 2007 Change 2008 2007 Change
Net sales $ 9,865 $ 8,911 11% $ 28,755 $ 25,613 12%
Income from continuing operations
before income taxes and minority interests 576 502 15% 1,268 1,015 25%

Three Months:
• The $954 million increase in consolidated net sales was primarily due to the favorable effects of foreign
currency translation ($639 million), higher revenues in the power solutions segment ($297 million)
mainly from pass-through pricing of higher lead costs and growth in the building efficiency business
($263 million) mainly from increased global demand for the Company’s offerings for nonresidential
buildings that improve energy efficiency and reduce greenhouse gas emissions. These increases were
partially offset by lower volumes in the North America unitary products group ($48 million) from a
decline in the U.S. residential housing market and lower net volumes in the North American automotive
markets ($197 million), which is consistent with the decline in North American industry production
volumes.
• The $74 million increase in consolidated income from continuing operations before income taxes and
minority interests was primarily due to the favorable effects of foreign currency translation ($50
million), higher sales volume and margin expansion in the building efficiency business ($41 million)
due to process and manufacturing improvements and higher volumes and improved performance mainly
in Europe and Asia in the power solutions segment ($20 million). These increases were partially offset
by lower North America volumes in automotive experience ($12 million) and lower revenues in the
North America unitary products group ($25 million) related to a decline in the U.S. residential housing
market.

Year-to-Date:
• The $3.1 billion increase in consolidated net sales was primarily due to the favorable impact of foreign
currency translation ($1.6 billion), pass-through pricing of higher lead costs in the power solutions
segment ($1.2 billion) and higher sales volumes in the building efficiency business ($613 million)
mainly from increased global demand for the Company’s offerings for nonresidential buildings, partially
offset by lower sales in the automotive experience business ($297 million) reflecting the weaker North
American automotive market.
• The $253 million increase in consolidated income from continuing operations before income taxes and
minority interests was primarily due to higher sales volume and improving gross margins through
pricing and cost savings measures in the building efficiency business ($146 million) despite higher
SG&A expenses to support growth, operational efficiencies in the automotive experience North
America segment ($75 million) despite lower volumes, higher volumes and improved price/product mix
in the power solutions segment ($35 million) and the favorable impact of foreign currency translation
($109 million). These increases were partially offset by lower revenues in the North America unitary
products group ($65 million) related to a decline in the U.S. residential housing market, the timing of
platform pricing adjustments and lower economic recoveries of material costs in automotive experience
Europe ($17 million) and higher SG&A costs in automotive experience Asia and power solutions
mainly to support growth ($30 million).

Segment Analysis

Management evaluates the performance of its business units based primarily on segment income, which is
defined as income from continuing operations before income taxes and minority interests excluding net financing
charges and restructuring costs.

22

Building Efficiency – Net Sales
Net Sales Net Sales
North America systems $ 605 $ 519 17% $ 1,680 $ 1,447 16%
North America service 626 590 6% 1,749 1,597 10%
North America unitary products 235 283 -17% 550 675 -19%
Global workplace solutions 785 657 19% 2,347 1,973 19%
Europe 716 578 24% 1,997 1,743 15%
Rest of world 710 620 15% 1,897 1,697 12%
$ 3,677 $ 3,247 13% $ 10,220 $ 9,132 12%

Three Months:
• The increase in North America systems was primarily due to higher product and equipment commercial
volumes in the construction and replacement markets.
• The increase in North America service was primarily due to growth in the truck-based and energy
performance contracting businesses ($20 million) and the impact of first quarter fiscal 2008 acquisitions
($16 million).
• The decrease in North America unitary products was primarily due to a depressed U.S. residential
market which has and continues to impact the need for HVAC equipment in new construction housing
starts.
• The increase in global workplace solutions primarily reflects a higher volume of global pass-through
contracts ($10 million), a net increase in services to existing customers ($52 million), new business ($18
million) and the favorable impact of foreign currency translation ($48 million).
• The increase in Europe reflects the favorable impact of foreign currency translation ($104 million) and
higher systems, equipment and product volumes ($34 million).
• The increase in rest of world is due to volume increases mainly in Latin America, Asia and the Middle
East ($37 million) and the favorable impact of foreign currency translation ($53 million).

Year-to-Date:
• The increase in North America systems was primarily due to higher product and equipment commercial
volumes in the construction and replacement markets.
• The increase in North America service was primarily due to growth in the truck-based and energy
performance contracting businesses ($119 million) and the impact of first quarter fiscal 2008
acquisitions ($33 million).
• The decrease in North America unitary products was primarily due to a depressed U.S. residential
market which has and continues to impact the need for HVAC equipment in new construction housing
starts.
• The increase in global workplace solutions primarily reflects a higher volume of global pass-through
contracts ($45 million), a net increase in services to existing customers ($156 million), new business
($25 million) and the favorable impact of foreign currency translation ($148 million).
• The increase in Europe reflects the favorable impact of foreign currency translation ($239 million) and
higher service, systems and product volumes ($15 million).
• The increase in rest of world is due to volume increases ($87 million) in Asia, Latin America and the
Middle East and the favorable impact of foreign currency translation ($113 million).

23

Building Efficiency – Segment Income

Segment Income Segment Income
North America systems $ 80 $ 63 27% $ 192 $ 135 42%
North America service 76 69 10% 144 117 23%
North America unitary products 3 28 -89% (20) 42 *
Global workplace solutions 16 17 -6% 45 49 -8%
Europe 38 33 15% 78 53 47%
Rest of world 88 64 38% 202 138 46%
$ 301 $ 274 10% $ 641 $ 534 20%
* Measure not meaningful.

Three Months:
• The increases in North America systems and North America service were primarily due to higher
margins due to process and manufacturing improvements ($35 million), partially offset by additional
SG&A expenses to support business growth initiatives ($5 million) and a nonrecurring contract benefit
received in the prior year ($6 million).
• The decrease in North America unitary products was primarily due to the decline in sales volumes.
• Despite higher sales volumes, global workplace solutions decreased slightly due to less favorable
margins and mix in North America.
• The increase in Europe was primarily due to the favorable impact of foreign currency translation ($6
million) and continuing benefit from prior year restructuring plans, branch office redesign and
manufacturing footprint changes ($14 million), partially offset by increased SG&A expenses to support
business growth and system implementations ($15 million).
• The increase in rest of world was primarily due to higher sales volumes and margin improvements in
Latin America, Asia and the Middle East ($18 million) and the favorable impact of foreign currency
translation ($6 million).

Year-to-Date:
• The increases in North America systems and North America service were primarily due to higher sales
volumes and improving gross margins through pricing and operational efficiencies ($112 million),
partially offset by additional SG&A expenses to support business growth initiatives ($22 million) and a
nonrecurring contract benefit received in the prior year ($6 million).
• The decrease in North America unitary products was primarily due to the decline in sales volumes ($59
million) and purchase accounting adjustments related to the September 2007 equity investment in a joint
venture with U.S. Airconditioning Distributors, Inc ($3 million).
• The slight decrease in global workplace solutions was primarily due to less favorable margins and mix
in North American contracts.
million) and continuing benefit from prior year restructuring plans, branch office redesign and
manufacturing footprint changes ($44 million), partially offset by increased SG&A expenses to support
business growth and system implementations ($33 million).
• The increase in rest of world was primarily due to higher sales volumes and margin improvements in
Asia, Latin America and the Middle East ($56 million) and the favorable impact of foreign currency
translation ($8 million).

24

Automotive Experience – Net Sales
Net Sales Net Sales
North America $ 1,681 $ 1,988 -15% $ 5,199 $ 5,549 -6%
Europe 2,705 2,312 17% 7,657 6,767 13%
Asia 402 335 20% 1,171 1,080 8%
$ 4,788 $ 4,635 3% $ 14,027 $ 13,396 5%

Three Months:
• The decrease in North America was primarily due to volume reductions with Ford Motor Company,
General Motors Corporation and Chrysler LLP (the Detroit 3) and Toyota Motor Corporation. The
decrease in net sales of 15% was consistent with the North American industry’s production decrease for
the quarter. A strike at a U.S. supplier to one of our major customers also unfavorably impacted net
sales by $79 million in the third quarter of fiscal 2008.
million) and increased volumes at General Motors Corporation, Fiat Automobiles SpA and The Volvo
Group.
• The increase in Asia was primarily due to the favorable impact of foreign currency translation ($12
million) and higher volumes with Nissan Motor Company in Japan and joint ventures in China.

Year-to-Date:
• The decrease in North America was primarily due to volume reductions with the Detroit 3 and Toyota
Motor Corporation. Additionally, a strike at a U.S. supplier to one of our major customers had an
unfavorable impact on net sales of $103 million.
million) and increased volumes at Kia Motors Corporation and Fiat Automobiles SpA, partially offset
by decreased business with Daimler AG and BMW AG.
• The increase in Asia was primarily due to the favorable impact of foreign currency translation ($52
million) and higher volumes with Nissan Motor Company in Japan, partially offset by lower sales
volumes mainly in Korea.

Automotive Experience – Segment Income
Segment Income Segment Income
Three M onths Nine M onths
(in millions ) 2008 2007 Change 2008 2007 Change
North A merica $ 47 $ 52 -10% $ 82 $ (1) *
Europe 139 139 0% 334 339 -1%
A s ia 13 (11) * 16 (2) *
$ 199 $ 180 11% $ 432 $ 336 29%
* M easure not meaningful.

25

johnson controls FY2008 3rd Quarter Form 10-Q

johnson controls FY2008 3rd Quarter Form 10-Q

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